As such, a big positive surprise from tomorrow's nonfarm payroll report could cause Treasury yields to resume their upward trajectory if it looks like the labor market is progressing toward those benchmarks faster than expected. In this environment, against a backdrop of historic equity inflows in January, the bond market is skittish.

This week, we got some clues on the state of the labor market in America. Yesterday's ADP report estimated that 192,000 private payrolls were added to the U.S. economy in January, above estimates of a 165,000 gain and up slightly from the previous month's downwardly-revised 185,000 new payrolls.

Initial jobless claims figures released today came in above expectations at 368,000, but the four-week moving average barely moved, at 352,000, aided by lower readings over the previous two weeks in January.

The employment sub-index of today's Chicago PMI report surged from contraction in December to robust expansion in January. Miller Tabak Chief Economic Strategist Andrew Wilkinson suggests that based on the last few instances of strong employment gains in the Chicago PMI, tomorrow's nonfarm payrolls print will ought to exceed consensus estimates.

The warm and relatively dry start to the northern winter also may give a boost to job creation in the January employment report out next week. We are estimating a gain in payrolls of 190,000. The trend in job growth has been remarkably stable around 150,000 per month for two solid years and the underlying trend may be given a lift now that home building is reaching a critical recovery stage. But winter months are notoriously volatile, and in this case, that poses some upside risk.

Moreover, benchmark revisions will be out with this report. Back in September, the preliminary estimate was that payrolls actually were 386,000 higher in March 2012 than initially reported. This means payroll gains may have been about 30,000 higher per month in the year leading up to March 2012. Often, trend changes based on the benchmarks are carried through the following year. If so, the payroll figures, including January’s, could look a look a lot better after this report.

Société Générale Senior U.S. Economist Brian Jones:

Market participants focus almost exclusively on the magnitude of payroll increases, yet we believe that the breadth of recent hiring across industries is just as important in determining the strength of a report. Both government and private surveys revealed a marked widening of job gains during the final months of 2012.

The BLS’ one-month private employment diffusion index – centred like closely followed Institute for Supply Management (ISM) activity gauges at 50 – climbed by 6.6 points to 63.2 in December. The three-month measure, one of the inputs into our nonfarm payroll forecasting procedure, jumped by 7.3 points to a nine-month high of 70.3.

An alternative composite barometer of the extent of private job gains constructed from ISM survey data tells a similar story. Broader reports of manufacturing and service-sector hiring propelled that measure 3.7 points higher to 54.9 – the strongest reading since last March.

BofA Merrill Lynch Co-Head of Global Economic Research Ethan Harris:

We forecast nonfarm payrolls to increase 130,000 in January, keeping the three- month average close to 150,000. The unemployment rate is likely to hold at 7.8% in January. There are a few special factors this month, including the final benchmark revision to payrolls and the population adjustment to the household survey. The preliminary benchmark revealed additional job creation of 386,000 over the 12 months ending March 2012. We suspect the risk is the final benchmark will be modestly higher. The population adjustment is hard to handicap and, in prior years, has created big swings in the labor force, which biased the unemployment rate. This adds an additional degree of uncertainty for the unemployment rate forecast.

Private payrolls are likely to increase 135,000 while the government cuts 5,000 jobs. We expect weak manufacturing payrolls given the contraction in the regional manufacturing surveys in early January. On the upside, we anticipate an increase in construction jobs given the pickup in homebuilding and renovations. The upside risk to our forecast comes from the improvement in jobless claims which are averaging 347,000 so far in January, a decline of 15,000 from December. However, we are not taking much signal from this improvement in claims given the large seasonal distortions which are typical this time of year. We anticipate a bounce back in claims at the end of January.

Deutsche Bank Chief US Economist Joseph A. LaVorgna:

In each of the last two years, employment started the year on a strong note only to weaken noticeably by the third quarter. In point of fact, nonfarm payrolls (adjusted for temporary Census hires) registered a three-month rate of change of +239k in April 2011, and subsequently slowed to only a +78k rate in July 2011. Last year, the three-month rate of change peaked at +252k in February and then slowed to just +67k in June. January 2012 also represented the strongest intra-year month of jobs gains at +275k. This week’s ADP survey imparts some upside risk to our forecast. Conceivably, financial markets will react less enthusiastically to news of strong January results this morning given the recent propensity of early year strength to make way for mid-year weakness.

What are we projecting? We estimate nonfarm payrolls advanced +170k and that private payrolls increased +180k, which would be the best showing since last August. Post-revision, these estimates are essentially in line with trend—remember the BLS will also release annual revisions to payrolls, hours and wages.

UBS Chief Economist Maury Harris:

ADP estimated that private payrolls rose 192k in Jan. The consensus for the official BLS number due on Friday is 168k (the same pace as in Dec); we forecast a stronger 185k.

There's no real reason to trust or to mistrust this ADP estimate: ADP adopted a new payroll sampling method in Oct, and while early results were good, the Dec estimate again showed its characteristic year-end upward bias. We just don't know how reliable the new methodology is.

ADP offered no reason to change our estimates for Friday’s employment report. We continue to forecast a 175k rise in total payrolls (cons 161k), 185k in private payrolls, and the unemployment rate down a tick to 7.7% (cons 7.8%).

Miller Tabak Chief Economic Strategist Andrew Wilkinson:

The range for the first employment report of 2013 spans 115-230,000 additional payrolls. We estimate a nonfarm payroll reading of 180,000 which should exceed a surprisingly strong December report of 155,000 as well as the median forecast gain of 165,000.

Because of the year-end strength and despite the potential freeze on account of the fiscal cliff we tend to prefer the path of the ADP report, which has been more upbeat surrounding labor market prospects and seems to better capture changes in construction payrolls after two-years of housing recovery. We also sense that if payrolls were unrestrained by the fiscal cliff at year’s end, employers will put their best foot forward to start 2013 – resolution or not on the spending front.